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2727thth December 2008,December 2008,Tri Tri NagarNagar KP CPE SCKP CPE SC Lunawat & Co.Lunawat & Co.

Limited Liability PartnershipsLimited Liability Partnerships

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CA. PRAMOD JAINCA. PRAMOD JAINFCA, ACS, AICWA, ISA(ICAI)FCA, ACS, AICWA, ISA(ICAI)

LUNAWAT & CO.LUNAWAT & CO.Chartered AccountantsChartered Accountants

27th December 2008,27th December 2008,Tri Tri NagarNagar KP CPE SCKP CPE SC Lunawat & CoLunawat & Co..

Reasons for LLP LegislationTo provide an effective alternate corporate business vehicle To provide an effective alternate corporate business vehicle to professionals and enterprises keen to institutionalize to professionals and enterprises keen to institutionalize their activities and graduate to the next level.their activities and graduate to the next level.To be a vehicle to contain a partnership of any size where To be a vehicle to contain a partnership of any size where partners may be at risk from the careless or accidental partners may be at risk from the careless or accidental negligence of a colleague negligence of a colleague To make it a separate legal entity thereby making it more To make it a separate legal entity thereby making it more closely akin to a company than to a partnership (except closely akin to a company than to a partnership (except insofar as the internal relations are governed by agreement insofar as the internal relations are governed by agreement between the partners)between the partners)To provide benefits of limited liability but allow its members To provide benefits of limited liability but allow its members the flexibility of the flexibility of organisingorganising their internal structure as a their internal structure as a partnership deed based on mutually arrived agreement.partnership deed based on mutually arrived agreement.


International ExperienceUNITED STATESUNITED STATES, , -- emerged in the early 1990s; emerged in the early 1990s;

While only two states allowed While only two states allowed LLPsLLPs in 1992, over forty had in 1992, over forty had adopted LLP statutes by the time adopted LLP statutes by the time LLPsLLPs were added to the were added to the Uniform Partnership Act (UPA) in 1996. Uniform Partnership Act (UPA) in 1996. Each individual state has its own law governing their Each individual state has its own law governing their formation. formation. Especially popular form of organization among professionals, Especially popular form of organization among professionals, particularly lawyers, accountants and architects. particularly lawyers, accountants and architects.

UNITED KINGDOM: UNITED KINGDOM: -- became law on 1/4/2001. became law on 1/4/2001. All partners have a form of limited liability, similar to that oAll partners have a form of limited liability, similar to that of f the shareholders of a corporation. the shareholders of a corporation. However, the partners have the right to manage the However, the partners have the right to manage the business directly, and (in many areas) a different level of tax business directly, and (in many areas) a different level of tax liability than in a corporation. liability than in a corporation. LLP is a "fiscal transparency". Only the members are liable LLP is a "fiscal transparency". Only the members are liable to taxation. to taxation.


LLP background in IndiaThe The AbidAbid HussainHussain Committee recommended Committee recommended legislation on LLP in 1997. legislation on LLP in 1997. LLP found mention in the report of Naresh Chandra LLP found mention in the report of Naresh Chandra Committee (2003) set up on regulation of private Committee (2003) set up on regulation of private companies. companies. The JJ The JJ IraniIrani Expert Committee on Company Law Expert Committee on Company Law (2005) recommended introduction of a LLP law. (2005) recommended introduction of a LLP law. The Government introduced the Limited Liability The Government introduced the Limited Liability Partnership Bill, 2006 in the Partnership Bill, 2006 in the RajyaRajya SabhaSabha on on 15.12.2006. 15.12.2006. It was later referred to the Department Related It was later referred to the Department Related Parliamentary Standing Committee on Finance Parliamentary Standing Committee on Finance The present Bill, 2008 has been approved by The present Bill, 2008 has been approved by RajyaRajyaSabhaSabha on 24.10.08 and on 24.10.08 and LokLok SabhaSabha on 12.12.08. on 12.12.08.


Changes in Bill 2006 and 2008The LLP Bill 2008 has 14 chapters containing 81 clauses and The LLP Bill 2008 has 14 chapters containing 81 clauses and 4 schedules. The earlier Bill had 14 chapters containing 73 4 schedules. The earlier Bill had 14 chapters containing 73 clauses and 4 schedules.clauses and 4 schedules.LLP Bill 2008 has introduced 4 new definitionsLLP Bill 2008 has introduced 4 new definitions-- Advocate; Advocate; Court; Entity and ScheduleCourt; Entity and ScheduleIn clause 5 In clause 5 -- LLP Bill 2008 has indicated the disqualifications LLP Bill 2008 has indicated the disqualifications of a partnerof a partnerIntroduced clause 29 seeking to provide that any person Introduced clause 29 seeking to provide that any person who by words spoken or written or by conduct represents who by words spoken or written or by conduct represents himself or knowingly permits himself to be represented to be himself or knowingly permits himself to be represented to be a partner in the LLP is liable for any credit given to the LLP a partner in the LLP is liable for any credit given to the LLP based on the misrepresentation. Also, if the business is based on the misrepresentation. Also, if the business is continued after the partnercontinued after the partner’’s death under the same LLP s death under the same LLP name, it does not render the legal heirs to be liable for any name, it does not render the legal heirs to be liable for any events occurring after the partnerevents occurring after the partner’’s death.s death.


Changes in Bill 2006 and 2008Introduced Clause 58. This clause seeks to provide the Introduced Clause 58. This clause seeks to provide the requirement and manner in which a firm, private company requirement and manner in which a firm, private company or unlisted public company shall be converted into LLPor unlisted public company shall be converted into LLPThe earlier Bill 2006, vide clause 58 had provided that the The earlier Bill 2006, vide clause 58 had provided that the Central government shall make rules for compromise, Central government shall make rules for compromise, arrangement or reconstruction of LLP. LLP Bill 2008 has arrangement or reconstruction of LLP. LLP Bill 2008 has introduced clauses 60,61 and 62 regarding the same.introduced clauses 60,61 and 62 regarding the same.LLP Bill 2008 has revised vide clause 69LLP Bill 2008 has revised vide clause 69-- If any document If any document that is to be filed with the registrar is not filed on time, that is to be filed with the registrar is not filed on time, then it may be filed within three hundred days from the then it may be filed within three hundred days from the date on which it should have been filed on payment of an date on which it should have been filed on payment of an additional fee of additional fee of RsRs 100/100/-- for every day of default in for every day of default in addition to the prescribed fees [ earlier clause 65 had a addition to the prescribed fees [ earlier clause 65 had a default fee of default fee of RsRs 500/500/-- for every day]for every day]


Changes in Bill 2006 and 2008LLP Bill 2008 has introduced Clause 70LLP Bill 2008 has introduced Clause 70-- enhanced enhanced punishment i.e. if the LLP or any partner or punishment i.e. if the LLP or any partner or designated partner commits an offence then the designated partner commits an offence then the LLP or any partner or designated partner shall for LLP or any partner or designated partner shall for the subsequent offence be punished with the subsequent offence be punished with imprisonment or in cases where fine is provided, imprisonment or in cases where fine is provided, the fine payable shall be twice the amount of finethe fine payable shall be twice the amount of fineLLP Bill 2008 has introduced Clause 73 LLP Bill 2008 has introduced Clause 73 –– Penalty Penalty on nonon non-- compliance of any order passed by the compliance of any order passed by the tribunal tribunal –– imprisonment which may extend to 6 imprisonment which may extend to 6 months and also a fine which shall be not less than months and also a fine which shall be not less than fifty thousand rupeesfifty thousand rupees


Changes in Bill 2006 and 2008LLP Bill 2008 has introduced Clause 78LLP Bill 2008 has introduced Clause 78-- The Central The Central government has the power to alter the schedules and the government has the power to alter the schedules and the alterations made shall be laid before both houses of the alterations made shall be laid before both houses of the parliamentparliamentIn clause 79 [earlier clause 72], the matters in respect of In clause 79 [earlier clause 72], the matters in respect of which Rules can be made by the Central government has which Rules can be made by the Central government has been increased from 34 to 38been increased from 34 to 38LLP Bill 2008 has introduced Clause 81LLP Bill 2008 has introduced Clause 81-- until the Tribunal until the Tribunal and Appellate tribunal are constituted under the provisions and Appellate tribunal are constituted under the provisions of the Companies Act, 1956, the provisions of the bill shall of the Companies Act, 1956, the provisions of the bill shall have effect subject to modifications.have effect subject to modifications.LLP Bill 2008 has also revised the four schedulesLLP Bill 2008 has also revised the four schedules


What is LLP?Limited Liability Partnership is aLimited Liability Partnership is a

A body corporate formed and incorporated under this ActA body corporate formed and incorporated under this ActIs a legal entity separate from its partners. Is a legal entity separate from its partners. It shall have perpetual succession. It shall have perpetual succession. It is liable to the full extent of its assets;It is liable to the full extent of its assets;However its liability of the partners would be limited to However its liability of the partners would be limited to their agreed contribution in the LLP. their agreed contribution in the LLP. Further, no partner would be liable on account of the Further, no partner would be liable on account of the independent or unauthorized actions of other partners, thus independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint allowing individual partners to be shielded from joint liability created by another partnerliability created by another partner’’s wrongful business s wrongful business decisions or misconduct. decisions or misconduct.


LLP Act Framework

3434--4141Financial DisclosuresFinancial DisclosuresVIIVII

3232--3333ContributionsContributionsVIVI

2626--3131Extent and Limitation of LLP Extent and Limitation of LLP and its Partnersand its Partners

VV2222--2525Partners & their relationsPartners & their relationsIVIV

1111--2121Incorporation of LLP and Incorporation of LLP and matters incidental theretomatters incidental thereto

IIIIII33--1010Nature of LLPNature of LLPIIII11--22PreliminaryPreliminaryII

SectionsSectionsHeadingHeadingChapter No.Chapter No.


LLP Act Framework

6666--8181MiscellaneousMiscellaneousXIVXIV6363--6565Winding Up and DissolutionWinding Up and DissolutionXIIIXIII

6060--6262Compromise, Arrangement or Compromise, Arrangement or Reconstruction of LLPReconstruction of LLP

XIIXII5959Foreign Foreign LLPsLLPsXIXI

5555--5858Conversion to LLPConversion to LLPXX

4343--5454InvestigationInvestigationIXIX

4242Assignment and Transfer of Assignment and Transfer of Partnership RightsPartnership Rights

VIIIVIII

SectionsSectionsHeadingHeadingChapter No.Chapter No.


LLP Rules Framework

1010Designated PINDesignated PINIIIIII

2727Destruction of old recordsDestruction of old recordsVIIIVIII2424--2626Financial DisclosuresFinancial DisclosuresVIIVII

2323Form of ContributionsForm of ContributionsVIVI2121--2222Partners & their relationsPartners & their relationsVV

1111--2020Incorporation of LLP and Incorporation of LLP and matters incidental theretomatters incidental thereto

IVIV

77--99Nature of LLPNature of LLPIIII11--66PreliminaryPreliminaryII

RulesRulesHeadingHeadingChapter No.Chapter No.


LLP Rules Framework

4040Conversion of Pub. Co. to LLPConversion of Pub. Co. to LLPXVIXVI3939Conversion of Pvt. Co. to LLPConversion of Pvt. Co. to LLPXVXV3838Conversion of Firm to LLPConversion of Firm to LLPXIVXIV3737Striking off name of Defunct LLPStriking off name of Defunct LLPXIIIXIII3636Electronic filing of DocumentsElectronic filing of DocumentsXIIXII

3535Compromise, Arrangement or Compromise, Arrangement or Reconstruction of LLPReconstruction of LLP

XIXI3232--3434Conversion to LLPConversion to LLPXX2828--3131InvestigationInvestigationIXIX

RulesRulesHeadingHeadingChapter No.Chapter No.


Incorporation of LLPName to have Name to have ‘‘Limited Liability PartnershipLimited Liability Partnership’’ or or ‘‘LLPLLP’’as the last words of its name.as the last words of its name.Should not contain words indicating participation / Should not contain words indicating participation / patronage of CG or SG e.g., National, Union, patronage of CG or SG e.g., National, Union, Central, Federal, Republic, President, etc.Central, Federal, Republic, President, etc.Should not contain words like Should not contain words like ‘‘British IndiaBritish India’’Should not be vague like D.I.M.O. LLP, etc.Should not be vague like D.I.M.O. LLP, etc.Should not include name like Bank, CA, CS, Should not include name like Bank, CA, CS, Insurance, etc. without approval of its regulatory Insurance, etc. without approval of its regulatory authorityauthority


Incorporation of LLPName not to be identical or too nearly resembles Name not to be identical or too nearly resembles any other any other

Partnership Firm, Partnership Firm, LLP, LLP, Body Corporate Body Corporate a registered trade mark a registered trade mark any trade mark which is subject of an application any trade mark which is subject of an application for registration under Trade marks Act, 1999. for registration under Trade marks Act, 1999.

–– if resembles CG may direct to change the name if resembles CG may direct to change the name –– 3 3 months to change (Section 17) + (Rule 18)months to change (Section 17) + (Rule 18)

Reservation of name in Form 1 Reservation of name in Form 1 –– for 3 monthsfor 3 monthsForm 2 and Form 3 to be filed along with fee.Form 2 and Form 3 to be filed along with fee.


Filing Fee – Annexure B

Increased slab of contribution and the fees paid on the Increased slab of contribution and the fees paid on the preceding slab of contribution shall be paid through Form 4 preceding slab of contribution shall be paid through Form 4

50005000LLP whose contribution exceeds LLP whose contribution exceeds RsRs. 10 . 10 LacsLacs

40004000LLP whose contribution exceeds LLP whose contribution exceeds RsRs. 5 . 5 LacsLacsbut does not exceed but does not exceed RsRs. 10 . 10 LacsLacs

20002000LLP whose contribution exceeds LLP whose contribution exceeds RsRs. 1 Lac but . 1 Lac but does not exceed does not exceed RsRs. 5 . 5 LacsLacs

500500LLP whose contribution does not exceed LLP whose contribution does not exceed RsRs. 1 . 1 LacLac

AmountAmountRegistration of LLP including conversionRegistration of LLP including conversion


LLP AgreementLLP Agreement (S. 2(o))meansLLP Agreement (S. 2(o))means

Any written agreementAny written agreementBetween partners of LLP or LLP and its Between partners of LLP or LLP and its partnerspartnersWhich determines the mutual rights & Which determines the mutual rights & duties of the partners and their rights & duties of the partners and their rights & duties in relation to that LLP.duties in relation to that LLP.

To be filed within 30 days of agreement in Form 4 To be filed within 30 days of agreement in Form 4 –– changes also to be filed (Rule 21)changes also to be filed (Rule 21)In absence of agreement as to any matter, First In absence of agreement as to any matter, First Schedule provisions would be applicableSchedule provisions would be applicable


LLP Agreement–First Schedule

Consent of all partners requiredConsent of all partners requiredChange in businessChange in business

Consent of all partners requiredConsent of all partners requiredNew partnerNew partner

NilNilRemunerationRemuneration

Each partner shall take partEach partner shall take partWorkingWorkingEach partner shall indemnifyEach partner shall indemnifyLoss caused by fraudLoss caused by fraudEach partner shall indemnifyEach partner shall indemnifyPersonal LiabilitiesPersonal LiabilitiesEqualEqualProfit & Loss sharingProfit & Loss sharingEqualEqualCapitalCapital

Schedule ISchedule IRegardingRegarding


LLP Agreement–First Schedule

Arbitration and Conciliation Arbitration and Conciliation ActAct

ArbitrationArbitration

Majority cannot do so unless Majority cannot do so unless express agreementexpress agreement

Expulsion of partnerExpulsion of partner

Profit to be given to LLPProfit to be given to LLPProfit from use of LLP Profit from use of LLP property or nameproperty or name

That partner to pay all profits That partner to pay all profits to LLPto LLP

Similar business by Similar business by any partnerany partner

By majority voteBy majority voteAny matter or issueAny matter or issueOne eachOne eachNo. of VotesNo. of Votes

Schedule ISchedule IRegardingRegarding


Conversion into LLPFirm into LLP Firm into LLP –– Statement in Form 17 Statement in Form 17 ––Schedule Schedule –– II + Rule 38II + Rule 38Private Company into LLP Private Company into LLP –– Statement in Statement in Form 17 Form 17 –– Schedule Schedule –– III + Rule 39III + Rule 39Unlisted Public Company into LLP Unlisted Public Company into LLP ––Statement in Form 18 Statement in Form 18 –– Schedule Schedule –– IV + IV + Rule 39Rule 39Registrar to give certificate in Form 19 (Rule Registrar to give certificate in Form 19 (Rule 32)32)


Partner in an LLPAny IndividualAny IndividualAny Body CorporateAny Body CorporateHowever individuals cannot become partner However individuals cannot become partner if:if:

Has been found of unsound mind by court Has been found of unsound mind by court of competent jurisdictionof competent jurisdictionHe is an undercharged insolventHe is an undercharged insolventHe has applied to be adjudicated as an He has applied to be adjudicated as an insolvent and his application is pendinginsolvent and his application is pending


Body Corporate

Body Corporate (S. 2(d)) includesBody Corporate (S. 2(d)) includesA Company A Company u/su/s 3 of Companies Act3 of Companies ActA LLP under this ActA LLP under this ActA LLP incorporated outside IndiaA LLP incorporated outside IndiaCompanies incorporated outside IndiaCompanies incorporated outside India

But Exclude:But Exclude:A Corporate SoleA Corporate SoleA CoA Co--operative Societyoperative SocietyAny other Body Corporate so notified.Any other Body Corporate so notified.


No. of PartnersMinimum 2Minimum 2Maximum Maximum –– NANAWhat happens if falls below 2 ?What happens if falls below 2 ?

If carries for more than 6 months and If carries for more than 6 months and knowing so, then he would be knowing so, then he would be personally liable for that period.personally liable for that period.Tribunal can wind upTribunal can wind up


PartnersSubscribers to incorporation documents to Subscribers to incorporation documents to be partnersbe partnersAny other person as per LLP agreement may Any other person as per LLP agreement may be a partnerbe a partnerRelationship (rights & duties) to be Relationship (rights & duties) to be governed by LLP agreementgoverned by LLP agreementPartners to intimate change in his name or Partners to intimate change in his name or address within 15 days to LLP in Form 6 address within 15 days to LLP in Form 6 Change in partner or name or address to be Change in partner or name or address to be filed with Registrar within 30 days of change filed with Registrar within 30 days of change in Form 5. in Form 5.


PartnersPartner himself may also file Form No. 5.Partner himself may also file Form No. 5.Right to receive profit/loss and distribution Right to receive profit/loss and distribution are transferable wholly or in part as per LLP are transferable wholly or in part as per LLP Agreement.Agreement.1/51/5thth Partners may apply to CG for Partners may apply to CG for Investigation of affairsInvestigation of affairsPartners can give loan or transact other Partners can give loan or transact other business.business.


Designated PartnersFurther disqualifications (Rule 9(1)):Further disqualifications (Rule 9(1)):

Is Is undischargedundischarged insolvent or adjudicated insolvent insolvent or adjudicated insolvent at any time in preceding 5 Years.at any time in preceding 5 Years.Suspended payment to Suspended payment to CrsCrs in preceding 5 yrsin preceding 5 yrsConvicted by court of any offence involving moral Convicted by court of any offence involving moral turpitude or imprisoned for not less than 6 turpitude or imprisoned for not less than 6 months.months.

Minimum 2 designated partners out of which at Minimum 2 designated partners out of which at least one should be resident in India.least one should be resident in India.Resident Resident –– stayed in India not less than 182 days stayed in India not less than 182 days during immediately preceding one Year.during immediately preceding one Year.


Designated PartnersDesignated partner Designated partner –– to obtain DPIN to obtain DPIN -- application application in Form 7 in Form 7 -- to give prior consent in Form 9to give prior consent in Form 9DIN to be treated as DPIN (Proviso to Rule 10(4)) DIN to be treated as DPIN (Proviso to Rule 10(4)) –– intimation to be given to CG in Form 25intimation to be given to CG in Form 25Intimation of DPIN to LLP in Form 26Intimation of DPIN to LLP in Form 26Responsible for doing all acts, matters, things, etc. Responsible for doing all acts, matters, things, etc. required by LLPrequired by LLPLiable for all penalties imposed on LLPLiable for all penalties imposed on LLPTo appoint DP within 30 days of vacancyTo appoint DP within 30 days of vacancyIf less than 2, each partner deemed to be DPIf less than 2, each partner deemed to be DP


Cessation of PartnersA person shall cease to be a partner when:A person shall cease to be a partner when:

The LLP agreement provides soThe LLP agreement provides soIf agreement does not provide, then by giving 30 If agreement does not provide, then by giving 30 days notice in Form 13days notice in Form 13On his deathOn his deathOn dissolution of LLPOn dissolution of LLPWhen he is declared to be of unsound mind by a When he is declared to be of unsound mind by a competent court competent court When he has applied to be adjudicated as When he has applied to be adjudicated as insolvent or is declared as insolventinsolvent or is declared as insolvent

A person dealing with former partner should know A person dealing with former partner should know of his cessation or his resignation should be filed of his cessation or his resignation should be filed with registrar, otherwise he still would be regarded with registrar, otherwise he still would be regarded as partner. (Section 24(3)).as partner. (Section 24(3)).


ContributionContribution may consist ofContribution may consist of

TangibleTangibleMoveableMoveableImmovableImmovable

IntangibleIntangibleOther benefit including:Other benefit including:

MoneyMoneyPromissory notesPromissory notesOther agreements to contribute cash or propertyOther agreements to contribute cash or propertyContracts for services performed or to be performedContracts for services performed or to be performed

Contribution to be valued by practicing CA / CWA / Contribution to be valued by practicing CA / CWA / approved approved valuervaluer from panel maintained by CGfrom panel maintained by CG


Extent of LiabilityPartner is agent of LLP but not of other Partners.Partner is agent of LLP but not of other Partners.LLP liability shall be met out of its propertyLLP liability shall be met out of its propertyPartner is generally not liable for obligation of LLPPartner is generally not liable for obligation of LLPPartner shall be personally liable for his own Partner shall be personally liable for his own wrongful act or omission but not for other wrongful act or omission but not for other partnerspartners’’ acts.acts.LLP is liable for wrongful act of partner in normal LLP is liable for wrongful act of partner in normal course of business. course of business. LLP not bound by anything done by a partner in LLP not bound by anything done by a partner in dealing with a person if that partner has no dealing with a person if that partner has no authority to do the particular act and the person authority to do the particular act and the person dealing knows that.dealing knows that.Unlimited liability in case of fraud. Unlimited liability in case of fraud.


Accounts & ReturnsMethod of Accounting:Method of Accounting:

Double entry systemDouble entry systemCash or accrualCash or accrual

Records to be preserved Records to be preserved Permanent Permanent –– Annexure CAnnexure C21 years 21 years –– LLP liquidation a/cLLP liquidation a/c5 years 5 years –– Rule 27(2)(b) & Annexure DRule 27(2)(b) & Annexure D8 years 8 years –– others and accountsothers and accounts3 years 3 years –– Foreign LLP after ceasingForeign LLP after ceasing

Statement of Accounts and Solvency to be filed Statement of Accounts and Solvency to be filed within 30 days of end of 6 months from end of within 30 days of end of 6 months from end of financial year in Form 8 (Rule 24(5))financial year in Form 8 (Rule 24(5))Annual Return to be filed within 60 days from end Annual Return to be filed within 60 days from end of financial year in Form 11 (to be verified by CS of financial year in Form 11 (to be verified by CS (Rule 25(2))(Rule 25(2))


AuditAudit compulsory. However exempt (Rule 24(10)if Audit compulsory. However exempt (Rule 24(10)if

Turnover does not exceed Turnover does not exceed RsRs. 40 . 40 LacsLacs; or; orContribution does not exceed Contribution does not exceed RsRs. 25 . 25 LacsLacs

Auditor to be appointed by DP within 30 days Auditor to be appointed by DP within 30 days before end of FY (except 1before end of FY (except 1stst year)year)Casual vacancy may be filled.Casual vacancy may be filled.Partners may appoint if DP failsPartners may appoint if DP failsOnly practicing CA to be auditorOnly practicing CA to be auditorRetiring auditor deemed to be reappointed if Retiring auditor deemed to be reappointed if appointment not made unless otherwise provided appointment not made unless otherwise provided in LLPAin LLPA


TaxationTaxationTaxation aspect remains an area of uncertainty, Taxation aspect remains an area of uncertainty, -- LLP will LLP will be treated as a firm as defined under the Income Tax Act be treated as a firm as defined under the Income Tax Act 1961 for the purpose of taxation. There can be two 1961 for the purpose of taxation. There can be two implications: implications:

That on the same basis as an ordinary partnership firm, the That on the same basis as an ordinary partnership firm, the LLP will pay tax on its profits after deduction of business LLP will pay tax on its profits after deduction of business expenditure, salaries and interest paid to the partners. expenditure, salaries and interest paid to the partners. Partners will be liable to pay tax on salary and interest Partners will be liable to pay tax on salary and interest receipts, whereas the share in profits is exempt;receipts, whereas the share in profits is exempt;Another way that only the profits in the hands of the LLP Another way that only the profits in the hands of the LLP partners will be taxed. A L.L.P. will have Pass through Status partners will be taxed. A L.L.P. will have Pass through Status (proposed by the Naresh Chandra Committee), the partners (proposed by the Naresh Chandra Committee), the partners will be liable to pay tax on share of will be liable to pay tax on share of LLP'sLLP's profits received in profits received in their hands. This is also known as tax transparency. their hands. This is also known as tax transparency.

The Bill has vide its First Schedule (CLAUSE No. 6) The Bill has vide its First Schedule (CLAUSE No. 6) prohibited partners of prohibited partners of LLPsLLPs from accepting any from accepting any remuneration. This implies that they may be subject to remuneration. This implies that they may be subject to Income Tax in respect of their share of profits received by Income Tax in respect of their share of profits received by them. them.


TaxationTaxationIf no remuneration is to be paid, its allowance in If no remuneration is to be paid, its allowance in the hands of LLP and taxation in the hands of the the hands of LLP and taxation in the hands of the partners shall not arise. partners shall not arise. Since the LLP is visualized of as a company as it is Since the LLP is visualized of as a company as it is under the Companies Act, it would be just and under the Companies Act, it would be just and logical to tax an LLP like a company and ignore the logical to tax an LLP like a company and ignore the existence of partners for tax purposes like existence of partners for tax purposes like shareholders.shareholders.If the partners receive any income like interest If the partners receive any income like interest from the LLP, the income so received would be from the LLP, the income so received would be taxable in the hands of the partners.taxable in the hands of the partners.


TaxationEven in under Even in under UK lawUK law, the LLP is a fiscal , the LLP is a fiscal transparency. Only the members are liable transparency. Only the members are liable to taxation. to taxation. Similarly, in Similarly, in USAUSA as in a partnership or as in a partnership or limited liability company (LLC), the profits of limited liability company (LLC), the profits of an LLP are distributed among the partners an LLP are distributed among the partners for tax Purposes, avoiding the problem of for tax Purposes, avoiding the problem of "double taxation" often found in "double taxation" often found in corporations. corporations. Shall have to wait for amendments in Shall have to wait for amendments in Income Tax Act.Income Tax Act.


Winding up & DissolutionVoluntary Voluntary –– by by ¾¾ membersmembersWound up by Tribunal:Wound up by Tribunal:

If LLP decides that it be dissolved by TribunalIf LLP decides that it be dissolved by TribunalIf no. of partners are below 2 for more than 6 If no. of partners are below 2 for more than 6 monthsmonthsIf LLP is unable to pay its debtsIf LLP is unable to pay its debtsIf LLP has acted against interests of the If LLP has acted against interests of the sovereignty & integrity of India, security of state sovereignty & integrity of India, security of state or public orderor public orderIf LLP fails to file statement of accounts and If LLP fails to file statement of accounts and solvency or annual return for 5 consecutive yrs.solvency or annual return for 5 consecutive yrs.Tribunal is of opinion that it is just and equitableTribunal is of opinion that it is just and equitable

Strike off defunct Strike off defunct LLPsLLPs (Section 75) + (Rule 37)(Section 75) + (Rule 37)


LLP Agreement ClausesName & address of initial partnersName & address of initial partnersBusiness to be done Business to be done -- restrictionsrestrictionsPlace of business & registered office Place of business & registered office Conditions /qualifications for admission, Conditions /qualifications for admission, resignation and expulsion of partnersresignation and expulsion of partnersContribution and conditions of its Contribution and conditions of its introduction & withdrawalsintroduction & withdrawalsRemunerationRemunerationProfit & Loss RatioProfit & Loss Ratio


LLP Agreement ClausesPersonal liabilities and fraudPersonal liabilities and fraudProfit from use of property/name of LLPProfit from use of property/name of LLPVote Vote weightageweightageResolution passing vote requirement Resolution passing vote requirement ––matters theretomatters theretoSimilar business by Partners situationsSimilar business by Partners situationsArbitrationArbitrationInterest on contribution/loanInterest on contribution/loanMode/method of distribution of profitsMode/method of distribution of profits


LLP Agreement ClausesRights over assets (tangible/intangible)Rights over assets (tangible/intangible)Assignment & transfer of partnership rightsAssignment & transfer of partnership rightsAppointment & reappointment of auditorsAppointment & reappointment of auditorsFinancial year Financial year –– ending 31ending 31stst MarchMarchBankingBankingMethod of accountingMethod of accountingWho would be designated partnersWho would be designated partnersDissolution situationsDissolution situations


LLP Forms – Annexure A

7(6)7(6)Application for allotment of D PINApplication for allotment of D PIN77

25(1)25(1)Intimation of particulars / change in particulars to Intimation of particulars / change in particulars to the LLP by the Partnerthe LLP by the Partner

66

25(2) 25(2) 25(3)25(3)7(4)7(4)

Notice of appointment of partners and the Notice of appointment of partners and the changes among them or consent of incoming changes among them or consent of incoming partner to become a partner / D Partner partner to become a partner / D Partner

5523(2)23(2)Form for filing LLPA and changes, if any thereinForm for filing LLPA and changes, if any therein44

11(1)11(1)Application & Declaration of Incorporation of LLPApplication & Declaration of Incorporation of LLP33

11(2)11(2)Form of Incorporation DocumentForm of Incorporation Document22

16(1)16(1)Application for reservation or change of nameApplication for reservation or change of name11

R. SecR. SecRelated toRelated toF. No.F. No.



58(1)58(1)Intimating the Registrar of Firms/ROC for Intimating the Registrar of Firms/ROC for conversion of firm/company into LLP. conversion of firm/company into LLP.

1414

24(1)24(1)Notice by Partner to resign as a Partner to the Notice by Partner to resign as a Partner to the other Partners. other Partners.

1313

13(2)13(2)Form for intimating other address for service of Form for intimating other address for service of documents documents

121235(1)35(1)Annual Return of a Limited Liability Partnership Annual Return of a Limited Liability Partnership 1111

7(3)7(3)Consent to act as DPConsent to act as DP-- Intimation of changes in Intimation of changes in particulars of DP to be given to the CGparticulars of DP to be given to the CG

1010

7(3)7(3)Consent to act as Designated Partner Consent to act as Designated Partner 99

34(2)34(2)Form for filing Statement of Account & Solvency Form for filing Statement of Account & Solvency 88




R R 35(11)35(11)

Notice of intimation of Order of Court/ Tribunal to Notice of intimation of Order of Court/ Tribunal to the Registrar the Registrar

2222

60(1)60(1)Affidavit in support of SummonsAffidavit in support of Summons2121

60(1)60(1)Summons for directions to convene meetingSummons for directions to convene meeting2020

58(1)58(1)Certificate of Incorporation on conversionCertificate of Incorporation on conversion1919

58(1)58(1)Application by a private company/unlisted public Application by a private company/unlisted public company for its conversion into LLPcompany for its conversion into LLP

181858(1)58(1)Application by a firm for its conversion into LLPApplication by a firm for its conversion into LLP1717

1212Certificate of IncorporationCertificate of Incorporation1616

13(3)13(3)Notice of change of place of registered office Notice of change of place of registered office 1515




R 35R 35Form of ProxyForm of Proxy2929

19(1)19(1)Notice of change of nameNotice of change of name2828

R 18R 18Application for reservation/renewal of reservation Application for reservation/renewal of reservation of name of name

2727

R R 10(9)10(9)

Intimation of allotment of DPIN to the Limited Intimation of allotment of DPIN to the Limited Liability Partnership by the Designated PartnerLiability Partnership by the Designated Partner

2626

R. R. 10(4)10(4)

Notice of intimation of DIN for the purpose of Notice of intimation of DIN for the purpose of DPIN DPIN

2525

Application to the Registrar or CGApplication to the Registrar or CG2424

1818Application for direction to change the NameApplication for direction to change the Name2323




200200LLP whose contribution exceeds LLP whose contribution exceeds RsRs. 10 . 10 LacsLacs

150150LLP whose contribution exceeds LLP whose contribution exceeds RsRs. 5 . 5 LacsLacsbut does not exceed but does not exceed RsRs. 10 . 10 LacsLacs

100100LLP whose contribution exceeds LLP whose contribution exceeds RsRs. 1 Lac but . 1 Lac but does not exceed does not exceed RsRs. 5 . 5 LacsLacs

5050LLP whose contribution does not exceed LLP whose contribution does not exceed RsRs. 1 . 1 LacLac

AmountAmountFor filing, registering or recording any For filing, registering or recording any document, form, Statement of Accounts and document, form, Statement of Accounts and Solvency, annual returns, etc. Solvency, annual returns, etc.



500500Any other application Any other application

5 pp5 ppObtaining certified copy of any other documentObtaining certified copy of any other document5050Obtaining certified copy of Obtaining certified copy of COI or COR of conversion of LLPCOI or COR of conversion of LLP

5050Fees for inspection of documents kept by Registrar Fees for inspection of documents kept by Registrar 50005000Application for renewal of name under rule 18(4) Application for renewal of name under rule 18(4)

1000010000Application for reservation of name by Foreign LLP u R 18(4)Application for reservation of name by Foreign LLP u R 18(4)

500500Application for striking off the name from Reg. Application for striking off the name from Reg.

1000010000Application for direction to change name Application for direction to change name u/su/s 18 18

200200Application for reservation of name Application for reservation of name u/su/s 16 16

AmtAmtOther FeesOther Fees


GeneralInvoices, Letterheads, etc to contain name, Invoices, Letterheads, etc to contain name, address, registration no. & a statement that it is address, registration no. & a statement that it is registered with Limited Liability [Section 21(1)]registered with Limited Liability [Section 21(1)]CG may by notification make any provisions of CG may by notification make any provisions of Company Law applicable to LLPCompany Law applicable to LLPForeign LLP, firm or Company can reserve the Foreign LLP, firm or Company can reserve the name for 3 years R. 18(4)name for 3 years R. 18(4)Electronic filing of documentsElectronic filing of documentsLate fee Late fee uptoupto 300 days 300 days –– RsRs. 100/. 100/-- per dayper dayNot applicable to NGOsNot applicable to NGOsMerger, reconstruction, amalgamation permissibleMerger, reconstruction, amalgamation permissible


Major Penalties

2 K2 K

2 K2 K

50K50K

LLPLLP––10K10KDPDP–– 10k10k

2 K2 K

10 K10 K

10K10K

Mini AmtMini Amt

NonNon--intimation of change in partnersintimation of change in partners

Non mention on invoices, etcNon mention on invoices, etc

Improper use of Improper use of ‘‘LLPLLP’’

Not complying with CG direction to Not complying with CG direction to change namechange name

NonNon--intimation of Registered office of intimation of Registered office of LLP and its changeLLP and its change

Non filing of consent of DPNon filing of consent of DPLiabilities and changes in DPLiabilities and changes in DP

Not having 2DP of which 1 is residentNot having 2DP of which 1 is resident

Nature of defaultNature of default

25(4) 25(4) 25(5)25(5)

21(2)21(2)

2020

17(2)17(2)

13(4)13(4)

10(2)10(2)

10(1)10(1)

SectioSectionn

25 K25 K25(1) 25(1) 25(2)25(2)

25 K25 K21(1)21(1)

5L5L2020

LLPLLP––5L5LDP DP ––1L1L

17(1)17(1)

25 K25 K1313

1 L1 L7(4); 7(4); 7(5); 8;97(5); 8;9

5 L5 L7(1)7(1)

Max Max AmtAmt

ContraveContravening s.ning s.


Major Penalties

5 L5 LContCont--

50 50 p.dp.d..

5K5KGeneral Penalties General Penalties –– not specifically not specifically providedprovided

7474

Imp.Imp.50K50K

Imp if Imp if provdprovd

1 L1 LImp. Imp.



Mini AmtMini Amt

Failure to comply with Tribunal Failure to comply with Tribunal OrdersOrders

Enhanced Penalty Enhanced Penalty –– second offencesecond offence

False Return, documents or False Return, documents or statements filedstatements filed

NonNon-- filing of Annual Returnfiling of Annual Return

Non maintenance of books of Non maintenance of books of accounts, records and auditaccounts, records and audit

Nature of defaultNature of default

73737070

3737

3535

34(5)34(5)

SectioSectionn

6 6 mnthsmnths2 times2 times

5 L5 LImp 2 yImp 2 y

3737


3535


3434

Max Max AmtAmt

ContravContravening s.ening s.


Partnership vs. LLP

LLP Act & LLP Act & Companies ActCompanies Act

Indian Partnership Indian Partnership ActAct

Governing Governing lawlaw

Min2 Max NAMin2 Max NAMin. 2 Max. 20Min. 2 Max. 20No. of No. of membersmembers

YesYesNoNoPerpetual Perpetual successionsuccession

LLPA to be reg. at LLPA to be reg. at ROC, Fees for ROC, Fees for filing all doc.filing all doc.

Deed on Stamp Deed on Stamp paper, even if paper, even if change in Const.change in Const.

Instrument Instrument RequirementRequirementss

SeparateSeparateNot SeparateNot SeparateLegal EntityLegal EntityLLPLLPPartnershipPartnership


Partnership vs. LLP

Only if turnover Only if turnover exceeds 40L or exceeds 40L or contribution 25 Lcontribution 25 L

Only if turnover Only if turnover exceeds 40L exceeds 40L –– 44AB44AB

AuditAudit

Limited to Limited to contributioncontribution

UnlimitedUnlimitedLiabilityLiability

DP to obtain DPINDP to obtain DPINNo legal No legal requirementrequirement

PartnerPartner’’s s IdentityIdentity

RegulatedRegulatedNo regulationNo regulationNamesNames

Contribution as per Contribution as per LLPALLPA

Nil, However Stamp Nil, However Stamp paper as per capitalpaper as per capital

Capital Capital RequirementRequirement

LLPLLPPartnershipPartnership


Partnership vs. LLP

ProfessionalsProfessionalsSmall businesses Small businesses and professionalsand professionals

Most Most preferred bypreferred by

Apart from Apart from contribution, loans contribution, loans may be covered may be covered

PartnerPartner’’s capital s capital ––cash /cash /trftrf allowedallowed

Loans Loans ––269SS/T269SS/T

As per LLPAAs per LLPAFlexibleFlexibleCapital Capital withdrawalwithdrawal

As per LLP ActAs per LLP ActNilNilPenaltiesPenalties

Statement of Statement of accounts to be filedaccounts to be filed

SecretSecretFinancialsFinancialsLLPLLPPartnershipPartnership


Company vs. LLP

Min2 Max NAMin2 Max NAPvtPvt--Min2 Max 50Min2 Max 50PubPub--Min3 Max NAMin3 Max NA

No. of No. of membersmembers

YesYesYesYesPerpetual Perpetual successionsuccession

LLPA to be reg. at LLPA to be reg. at ROC, Fees for ROC, Fees for filing all doc. filing all doc. ––Filing fee Less Filing fee Less than company.than company.

MA to be reg. at MA to be reg. at ROC, Fees for filing ROC, Fees for filing all doc.all doc.

Instrument Instrument RequirementRequirementss

SeparateSeparateSeparateSeparateLegal EntityLegal EntityLLPLLPCompanyCompany


Company vs. LLP

Regulated by LLPA Regulated by LLPA Regulated by MA Regulated by MA & AA& AA

Flexibility of Flexibility of businessbusiness

Only DP to obtain Only DP to obtain DPINDPIN

All directors to All directors to obtain DINobtain DIN

Directors Directors IdentityIdentity

Regulated Regulated -- other other partnership names partnership names cannot be keptcannot be kept

RegulationRegulationNamesNames

Contribution as per Contribution as per LLPALLPA

1 Lac for Pvt. & 5 1 Lac for Pvt. & 5 LacsLacs for Public for Public Ltd. Cos.Ltd. Cos.

Capital Capital RequirementRequirement

LLPLLPCompanyCompany


Company vs. LLP

Not mandatory Not mandatory Regulated by Regulated by Companies ActCompanies Act

MeetingsMeetings

Partners consent Partners consent requiredrequired

No consent No consent requiredrequired

ShareholdersShareholders

Not possibleNot possiblePossiblePossibleListingListingOnly if turnover Only if turnover exceeds 40L or exceeds 40L or contribution 25 Lcontribution 25 L

CompulsoryCompulsoryAuditAudit

professionalsprofessionalsLarge businessesLarge businessesMost Most preferred bypreferred by

LLPLLPCompanyCompany


THE DREAM IS NOT WHAT YOU THE DREAM IS NOT WHAT YOU SEE IN SLEEP...... SEE IN SLEEP......

DREAM IS WHICH DOES NOT LET DREAM IS WHICH DOES NOT LET YOU SLEEP. YOU SLEEP.

DR. ABDUL KALAM DR. ABDUL KALAM (Former President of the Republic of India)(Former President of the Republic of India)


CA. Pramod JainCA. Pramod JainLUNAWAT & CO.LUNAWAT & [email protected]@lunawat.com

98110738679811073867